Brain Booster for UPSC & State PCS Examination (Topic: GAFA Tax)

Brain Booster for UPSC & State PCS Examination

GAFA Tax

As the coronavirus deficit soars into the trillions, governments across the globe are planning to tax big online companies which have gained most from the pandemic and have always paid nominal or very less taxes.
These big giants Google, Apple, Facebook and Amazon all together known as GAFA operates from the jurisdictions with convenient tax structures and pays very little taxes in the host countries despite having large user and revenue base.
US is having opposition to GAFA taxes as these taxed companies are US based companies and impacts US tax base.

The French parliament in 2019 approved a law that made France the first major economy to impose a tax on internet heavyweights. The legislation will impose a 3% levy on the total annual revenues of the largest technology firms providing services to French consumers.
Several Latin American countries re also planning to raise taxes on high-income earners, and Indonesia’s move to raise value-added tax on digital platforms — because, in the words of its finance minister, “their sales have soared amid the COVID-19 outbreak.”
The European Union (EU) is mulling a series of taxes, to be raised directly by its executive arm in Brussels, to help fund the pandemic recovery in the 27-nation bloc. They include a tax on high-carbon-emission imports, a tax on digital firms and a tax on 70,000 large multinational companies that access the EU’s single market and its 450 million consumers.
Some other EU member states such as Britain, Spain and Italy are also working on national versions of a digital tax, with Singapore and India also planning their own schemes.

Existing tax norms that are framed envisaging brick and mortar business models are not suitable to regulate online services.
This is because the digital economy is characterized by a unique system of value creation resulting from a combination of factors such as sales functions, algorithms and personal information of users.
What distinguishes technology companies from traditional businesses is user participation in creating value, which, in turn, translates into revenue. Although using consumer data to improve businesses is not exclusive to the digital economy, the unique ability of digital businesses lies in their power to analyse big data collected via constant user interaction and data mining.
European countries in particular say the so-called GAFA — Google, Apple, Facebook and Amazon — are unfairly exploiting tax rules that let them declare profits in low-tax havens, depriving them of a fair share of their fiscal payments.

Realising the fact that India was losing out on revenue from digital firms billed overseas, the government in June 2016 introduced a 6% tax in the form of an equalisation levy or known as Google tax on the amount paid to internet companies by advertisers.
In the Union Budget 2018-19, the government also proposed to amend the Income Tax Act to tax digital entities with a large user base or significant economic presence in the country.
In fiscal 2018, Google India reported a 30% increase in revenues to Rs 9,337.7 crore with profit after tax rising 33% to Rs 407.2 crore. The amount transferred for “purchase of advertising space”, increased by 36% to Rs 4,949.6 crore, according to regulatory filings.
The government’s push for internet companies to host data of Indian users in local servers is due to data security and privacy and also due to concerns that they deliver services mostly from overseas, outside India’s tax jurisdiction.